The High Court invalidated the post-approval reassessment, affirming the binding nature of Resolution Plans under the Insolvency and Bankruptcy Code.
The Delhi High Court division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja reviewed a petition and observed that reassessment actions taken by the Income Tax Department post-approval of a Resolution Plan under the Insolvency and Bankruptcy Code are invalid, as the approved plan binds all stakeholders, extinguishing any claims not lodged prior to its approval. The Division Bench further noted that this reinforces the principle that the legal obligations of the corporate debtor are resolved upon the plan’s approval, thereby preventing subsequent reassessment proceedings.
In a recent judgment, the High Court examined a writ petition challenging a notice issued under Section 148 of the Income Tax Act, 1961, concerning the Assessment Year 2014-15. The petitioner also contested an order that addressed previously submitted objections regarding the reassessment. Prior to this petition, the petitioner had filed a similar challenge, which the Court had resolved by directing the respondents to consider the objections before moving forward with the reassessment process. Central to the petitioner’s argument was the claim that the reassessment infringed upon the approved Resolution Plan under the Insolvency and Bankruptcy Code, 2016, which imposed restrictions on claims relating to periods before the plan's approval.
Counsel for the petitioner highlighted various judicial precedents, particularly those from the Supreme Court, which clarified the legal framework surrounding the IBC. Ms. Jha contended that the Income Tax Department lacked jurisdiction to reassess claims predating the Resolution Plan's approval. The petitioner, established in 2005 and involved in the manufacturing and exporting of steel products, had undergone insolvency proceedings initiated by the State Bank of India in 2016. Following a moratorium imposed by the National Company Law Tribunal in July 2018, a Resolution Plan was approved in October 2020. However, a notice under Section 148 was issued in March 2021, prompting the petitioner to respond, yet the reassessment process continued despite objections being raised.
The respondents maintained that the Income Tax Department could be considered an operational creditor under the IBC, asserting that prior assessment orders remained unaffected by the moratorium. They argued that significant income had escaped assessment for the relevant year. In defence, Ms. Jha reiterated that the reassessment lacked jurisdiction, stressing the binding nature of the Resolution Plan on all stakeholders, including the Income Tax Department. She underscored that the obligations of the petitioner were extinguished upon the plan's approval, rendering the reassessment proceedings ineffective.
Ultimately, the High Court recognized the established legal principles indicating that reassessment actions initiated after the approval of a Resolution Plan would not be valid. The Court aligned its conclusions with previous rulings that emphasized the intent of the IBC to provide a fresh start for successful resolution applicants. Citing observations from the Rishi Ganga Power Corporation case, the Court noted that since the Revenue had failed to lodge claims despite an invitation for creditors to do so, it could not enforce the impugned orders. The binding nature of the approved resolution plan was reiterated, leading the Court to allow the writ petition and quash the notice issued under Section 148 for the Assessment Year 2014-15.
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